PARTNER, FOX WILLIAMS LLP
CRITICISM and reform of financial regulation is a political hot topic of debate and a powerful electoral tool. With the fast approaching general election and the narrowing lead in opinion polls between the main political parties, what exactly do Labour, the Conservatives and the Liberal Democrats have in store for financial regulation?
The Conservatives plan a complete overhaul, demolishing the existing tripartite system (the FSA, the Bank of England and the Treasury), labelling its lack of communication, clarity and clear division of responsibility a cause of the financial crisis. The FSA’s responsibilities will be transferred to a stronger Bank of England, in charge of macro and micro-prudential supervision, with the authority and powers to ensure financial stability.
A Consumer Protection Agency would merge and consolidate consumer powers currently divided between the FSA and the Office of Fair Trading. A specially appointed Treasury Minister would work to ensure any European financial regulations are in the interests of the City, ensuring the harmonisation of transnational regulation. A US-style split-up of large banks and a diluting of what they regard as a concentrated retail banking market is proposed, as well as a bank levy without the need for an international agreement among the world’s largest economies.
Labour believes its tripartite structure is still valid, but plans to strengthen the FSA further, granting it a financial stability objective and powers to take emergency actions specifically for reasons of financial stability. A Committee for Financial Stability, chaired by the Chancellor, would consolidate the existing three bodies. A US-style split-up of banks would prove to be fruitless, with the party saying: “It is the connections between institutions that cause problems not the legal entity”. Labour is pro a global bank levy to prevent another financial crisis, but only with international support.
In contrast to the Tory approach the Liberal Democrats will leave untouched the existing tripartite system. Regulatory and supervisory upheaval would cause unnecessary transition costs, disruption and demoralisation at the FSA. One Committee for Financial Stability should replace the existing three, be chaired by the Governor of the Bank of England and include an FSA representative. They appreciate the lack of competition in retail banking and to curtail this, propose issuing new banking licenses or a split-up of part nationalised banks. They agree with Labour that any bank levy can only take place with international consensus, helping to maintain the UK’s competitiveness amongst financial markets.
Notwithstanding the election results, one thing is for certain – the FSA is flexing its regulatory muscle, bolstering its teams and enforcing its strategy of credible deterrence. It is a force to be reckoned with and will not give up without a fight.
– OPTIONAL CONCLUSION